Italian Prime Minister Giuseppe Conte has broadened the government’s power to intercede on proposed takeovers.

Simon Clark

Ben Dummett

European governments are strengthening protections against foreign business takeovers as concerns grow that companies whose share prices have slumped because of the coronavirus outbreak are vulnerable to unwanted approaches from bargain hunters.

New protective moves from Italy, Germany, Spain and other countries come as Saudi Arabia’s sovereign-wealth fund has snared stakes in European energy giants
Equinor AS
EQNR 5.49%
A,
Eni
E 5.61%
SpA and
Royal Dutch Shell
RDS.A 6.18%
PLC. The Saudis also bought into Miami-based
Carnival Corp.,
CCL 16.40%
the world’s largest cruise operator, whose shares have been hammered by the pandemic.

In China and other Asian countries, where life shows signs of returning to normal, business executives are starting to consider ways to invest in Europe amid the market slump, said Nestor Paz-Galindo,
UBS Group AG
’s head of mergers and acquisitions in Europe. But, he said, the increased regulatory scrutiny could prevent a flurry of deals.

Protectionism has risen in the U.S. and Europe in recent years, as President Trump and politicians in the U.K., France and Germany sharpened tools to block foreign takeovers of strategic companies.

Many of those moves were spurred by China’s appetite for technology companies, which raised concerns over Chinese businesses making acquisitions that could potentially be used by Beijing to gain an economic or militarily advantage. In 2018, for example, Germany blocked the sale of machine-tool maker Leifeld Metal Spinning AG to a Chinese investor.

“The coronavirus has accelerated a trend of governments putting the national interest first,” said Samantha Mobley, a London-based partner at law firm Baker McKenzie who specializes in competition law.

Italian Prime Minister Giuseppe Conte this week announced increased powers to block foreign takeovers—including by companies based in other European Union nations—in response to the economic chaos caused by the coronavirus. Milan’s benchmark stock index has lost about a third of its value since the virus exploded in Italy in February and the slump has fueled fears that the nation’s companies are vulnerable to unwanted takeovers.

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The EU’s executive arm warned member states last month that the impact of the virus made it even more important to screen takeover offers from outside the bloc to prevent the loss of companies crucial to the region’s health and security.

“EU industry needs decisive protection to prevent strategic replacement and to avoid a great takeover,” Aegis Europe, an alliance of more than 20 European manufacturing associations, said in an April 2 letter to European Commission President Ursula von der Leyen.

Mr. Conte went a step further than others in saying he could even block buyers based in other EU nations. The Italian prime minister’s so-called golden power shields banks and insurers as well as companies in the food, health, transport, water, technology, communications, energy and defense sectors.

A record number of Americans filed jobless claims, and the Federal Reserve is rolling out loan programs for local governments and midsize businesses. WSJ’s Lorie Hirose has the latest on the pandemic. Photo: Getty Images

“We have strengthened the golden power,” Mr. Conte said in Rome on Monday. “It guards all these companies and enables us to intervene in takeovers from within the European Union.”

Germany’s government said Wednesday that it was increasing protection of German and European companies. Spain also recently announced measures, and France has increased protections.

“The current situation especially shows the need to have our own technologies and competencies in specific areas in Germany and in Europe,” German Economy Minister Peter Altmaier said on Wednesday. “With this, we can better protect European security interests.”

Social lockdowns intended to contain the virus have suffocated economies and erased trillions of dollars from stock markets. The Stoxx Europe 600 index has fallen about 20% this year, while in the U.S. the S&P 500 stock index has dropped about 14%.

Angelica Donati, a former Goldman Sachs Group Inc. banker who now leads a real-estate development company in Rome, supports the Italian government’s policy as long as it is temporary. Mr. Conte said the broadening of his golden power rule will last until the end of the year.

“It’s about monitoring hostile takeovers and I think that it makes perfect sense in this climate,” Ms. Donati said in an interview. “It doesn’t stop you from agreeing to a sale. What it stops is raiders coming in and trying to get bargain basement deals.”

Italy has resisted approaches from companies in other EU countries in the past and introduced the golden power rule in 2012 to protect companies vital to defense and national security. It enables the government to veto or impose restrictions on takeovers of companies considered to be strategically important.

Mr. Conte’s expansion of the rule to cover more sectors, such as finance, and protect them from EU buyers contrasts with his strong support for so-called coronabonds—mutualized debt that would be issued at the EU level, instead of by member states, to finance the fight against the virus.

In Italy, increasing the power to resist European takeovers while endorsing EU debt are both positions seen by some as helping the nation at a critical time, as serving the national interest, according to Marcello Messori, an economics professor at Rome’s LUISS University.

“The Italian government feels that Italy is really in a fragile situation,” Mr. Messori said.

Protectionist policies could unravel EU integration if they harden further, said Andrea Bonomi, the Italian founder of Investindustrial, one of Europe’s biggest private-equity firms.

“If the golden power is the beginning of a protectionism movement, then it’s the beginning of the end,” Mr. Bonomi said in an interview. “If the golden power is to protect as you build your country, then it’s the beginning of the future. I’m betting on that.”